HK faces ‘perfect storm’ if political risk not contained: Tsang

Hong Kong could be vulnerable to a “perfect financial and economic storm” if the city suffers political instability and brings forth attacks from international hedge funds, Financial Secretary John Tsang warned.

With the city grappling with economic slowdown and unemployment risks, people who are looking at civil disobedience as a tool to fight for universal suffrage should give serious thought as to the consequences of their actions, Tsang wrote on his blog over the weekend.

The government is likely to report a contraction in the economy for the three months ended June, the official said, adding that the city has seen a marked decline in tourists’ consumption.

Investment from private institutions has dropped while private consumption only edged up slightly, giving rise to some figures that were weakest since the first quarter of 2009.

Watches, jewelry, electric appliances and photographic items have been hit the hardest. Meanwhile, the unemployment rate has risen to 3.2 percent in the second quarter, from 3.1 percent during the first quarter, with the under-employment rate increasing to 1.5 percent, Tsang said.

The per-capita consumption of mainland visitors to Hong Kong may not bounce back quickly, the finance chief warned. Meanwhile, service exports will stabilize only if the Chinese economy grows steadily and the United States and Europe maintain mild recovery, he said.

However, Tsang warned of earlier-than-expected interest rate hikes in the United States should the inflation situation change further. Europe may also be dragged if problems in the region flare up again.

Civic Party lawmaker Alan Leong accused Tsang of misleading the public by blaming the democrats for causing the economic slowdown, the Hong Kong Economic Journal reported Monday. The city’s weakening economic growth was caused by the declining transparency in the government’s policies, Leong said.

For example, the government could not give a reason as to why it rejected a free-to-air television license to HKTV, which is controlled by Ricky Wong Wai-kay, Leong said.

Democratic Party chairwoman Emily Lau Wai-hing said if Tsang is worried that the political struggle in Hong Kong may hurt the economy, he should ask Beijing to fulfill Hong Kong people’s demand for true democracy.

Economists and strategists say Hong Kong could potentially run into an economic downturn cycle. There could be quarterly contractions in the coming two years, according to Law Ka-chung, chief economist and strategist at the Hong Kong branch of Bank of Communications (03328.HK).

Hong Kong’s second-quarter economic data is due on Friday. Along with the figures, the government could announce a revised growth forecast for the full year.

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